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Financial Services Law Insights and Observations

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  • Iowa amends permissible interest rates on credit transactions

    State Issues

    On April 15, the Iowa governor signed HF 260, which amends the maximum interest rate and charges permitted under Iowa Code 2019. Specifically, for interest-bearing consumer credit transactions up to $30,000 (increased from $10,000), the interest rate may not exceed the lesser of $30 or ten percent of the financed amount. The amendments also specify the minimum charge creditors are allowed to collect or retain when prepayments are made in full, and stipulate that if a service charge has been collected on an interest-bearing consumer credit transaction then a “creditor shall not collect or retain a minimum charge upon prepayment.” HF 260 takes effect July 1.

    State Issues State Legislation Interest Rate Fees Consumer Lending

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  • Arkansas establishes GAP waiver requirements

    State Issues

    On April 8, the Arkansas governor signed HB 1672, which provides a framework within which guaranteed asset protection (GAP) waivers may be offered in the state. Among other provisions, the act (i) clarifies that GAP waivers are not insurance and are exempt from the state’s insurance laws; (ii) states that persons who market, sell, or offer GAP waivers are exempt from Arkansas’ licensing requirements, provided they comply with the act; (iii) establishes requirements for offering GAP waivers and clarifies that any cost to the borrower for the sale of a GAP waiver, in compliance with TILA, should not be considered a finance charge or interest; (iv) states that neither the extension of credit, nor the sale or lease terms of a motor vehicle, “may be conditioned upon the purchase of a [GAP] waiver;” and (v) clarifies contractual liability coverage, disclosure requirements, and requirements and restrictions for GAP waiver cancellations, including refund provisions. HB 1672 further stipulates that the state’s insurance commissioner may enforce the act’s provisions and impose penalties. The act takes effect 90 days after adjournment of the legislature.

    State Issues State Legislation GAP Waivers Auto Finance Licensing

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  • New Mexico modifies the Service Contract Regulation Act

    State Issues

    On April 4, the New Mexico governor signed SB 350, which amends the state’s Service Contract Regulation Act to prevent providers from including automatic renewal provisions within service contracts unless they are clearly disclosed. The Act defines a service contract as a contract in which a provider is obligated for a specific period to repair, replace, or perform maintenance on property described in the contract, or to reimburse or indemnify the holder for costs to repair, replace, or perform maintenance on that property. Under SB 350, in addition to the automatic renewal requirements, the bill allows a service contract holder to provide notice, at least 30 days in advance, of its intent not to review a service contract. If a holder cancels a service contract, subject to the bill’s timing restrictions, the provider is required to refund the contract holder one hundred percent of the unearned pro rata provider fee, less any claims paid, and the provider may charge an administrative fee of up to 10 percent of the purchase price of the contract. The bill is effective June 14.

    State Issues State Legislation Consumer Finance Service Contracts

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  • New Mexico amends financial lending licensing requirements

    State Issues

    On April 2, the New Mexico governor signed HB 584, which amends the Collection Agency Regulatory Act and the Motor Vehicle Sales Finance Act to, among other things, require sales finance companies obtain a license to conduct business in the state. The bill outlines licensing requirements for such companies. State and national banks authorized to do business in the state are not required to obtain a license under the Motor Vehicle Sales Finance Act, “but shall comply with all of its other provisions.” Under HB 584, the Director of the Financial Institutions Division of the Regulation and Licensing Department may utilize the Nationwide Multistate Licensing System and Registry (NMLS) or other entities designated by the NMLS in order to receive and process licensing applications. The Director is also granted the authority to issue and deny licenses.

    HB 584 also amends definitions used within the state’s Mortgage Loan Originator Licensing Act, and outlines provisions related to (i) licensing, registration, renewal, and testing requirements; (ii) certain exemptions; (iii) the issuance of temporary licenses to out-of-state mortgage loan originators who are both licensed through the NMLS and complete the mandatory education and testing requirements; and (iv) continuing education requirements. HB 584 also grants the Director the authority to establish rules for licensing challenges; “deny, suspend, revoke or decline to renew a licenses for a violation of the New Mexico Mortgage Loan Originator Licensing Act”; and impose civil penalties for violations.

    Furthermore, HB 584 also amends the definitions used within the state’s Uniform Money Services Act and the Collection Agency Regulatory Act by listing licensing application requirements, and granting the Director the same authorities provided above.

    The amendments take effect July 1, 2019.

    State Issues State Legislation Consumer Lending Licensing Auto Finance Mortgages Mortgage Origination Money Service / Money Transmitters Debt Collection NMLS

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  • New Mexico amends provisions related to installment and small dollar loans

    State Issues

    On April 3, the New Mexico governor signed HB 150, which amends the New Mexico Bank Installment Loan Act of 1959 and the New Mexico Small Loan Act of 1955 to, among other things, change provisions relating to financial institutions and (i) clarify that unfair or deceptive trade practices, or unconscionable trade practices, are considered violations of the Unfair Practices Act; (ii) expand annual lender reporting requirements, including identifying secured and unsecured loan products, fees and interests paid by the borrowers, loan terms, and default rates; (iii) clarify allowable loan insurance, including provisions related to licensing requirements for lenders; and (iv) expand state and federal disclosure requirements. The amendments also limit interest and other charges (permitted finance charges cannot exceed the lesser of $200 or 10 percent of the principal with outlined exceptions); grant rights of rescission within specified time frames to allow borrowers to return the full amount of funds advanced by the lender without being charged fees; and provide for penalties for lenders who willfully violate any of the provisions. Specifically, the act applies to installment loans covered by the Installment Loan Act and the Small Loan Act, and does not apply to federally insured depository institutions. The act takes effect January 1, 2020, and is applicable to loans subject to the aforementioned acts that are executed on or after the effective date.

    State Issues State Legislation Consumer Lending UDAP Installment Loans Small Dollar Lending

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  • New York requires student loan servicers to be licensed in broad legislation

    State Issues

    On March 31, the New York governor announced the passage of the state’s FY 2020 Budget, which includes an amendment (known as “Article 14-A” or “the Act”) to the state’s banking law with respect to the licensing of private student loan servicers. Article 14-A requires student loan servicers to be licensed by the New York Department of Financial Services (NYDFS) in order to service student loans owned by residents of New York. The licensing provisions do not apply to the servicers of federal student loans—defined as, “(a) any student loan issued pursuant William D. Ford Federal Direct Loan Program; (b) any student loan issued pursuant to the Federal Family Education Loan Program, which was purchased by the government of the United States pursuant to the federal Ensuring Continued Access to Student Loans Act and is presently owned by government of the United States; and (c) any other student loan issued pursuant to a federal program that is identified by the superintendent as a ‘federal student loan’ in a regulation”—as the Act treats federal servicers as though they are a licensed student loan servicer. Banking organizations, foreign banking organizations, national banks, federal savings associations, federal credit unions, or any bank or credit union organized under the laws of any other state, are also considered exempt from the new state licensing requirements.

    In addition to the licensing requirements, Article 14-A also prohibits any student loan servicer—including those exempt from licensing requirements or deemed automatically licensed—from, among other things, (i) engaging in any unfair, deceptive, or predatory act or practice with regard to the servicing of student loans, including making any material misrepresentations about loan terms; (ii) misapplying payments to the balance of any student loan; (iii) providing inaccurate information to a consumer credit reporting agency; and (iv) making false representations or failing to respond to communications from NYDFS within fifteen calendar days. Article 14-A requires student loan servicers (not including exempt organizations) to accurately report a borrower’s payment performance to at least one credit reporting agency if the organization regularly reports information to a credit reporting agency. Additionally, the Act specifies that a student loan servicer shall inquire on how a borrower would like nonconforming payments to be applied and continue that application until the borrower provides different directions. Article 14-A also outlines examination and recordkeeping requirements and allows for the NYDFS Superintendent to penalize servicers the greater of (i) up to $10,000 for each offense; (ii) a multiple of two times the violation’s aggregate damages; or (iii) a multiple of two times the violation’s aggregate economic gain. Article 14-A takes effect 180 days after becoming law.

    State Issues State Legislation Student Lending Consumer Finance NYDFS Student Loan Servicer Licensing

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  • Utah applies RESPA provisions to title entity affiliated business arrangements

    State Issues

    On March 29, the Utah governor signed SB 121, which modifies certain title insurance definitions and provisions and adopts, with certain exceptions, Section 8 of RESPA for the purposes of state law governing affiliated business arrangements involving title entities. SB 121 “repeals existing provisions governing controlled business relationships in the title industry,” and permits an “affiliated business arrangement” as defined under 12 U.S. Code § 2602, with the exception that the “services that are the subject of the arrangement do not need to involve a federally related mortgage loan.”

    Specifically, title entities with affiliated-business arrangements will be regulated by the state’s Division of Real Estate (Division), which has enforcement authority over the bill’s provisions, including over certain RESPA provisions against real estate licensees such as “failing to timely disclose to a buyer or seller an affiliated business relationship.” Title companies are also required to file annual reports to the Division related to affiliated business arrangements as well as capitalization for the previous calendar year. SB 121 further provides a specific list of RESPA violations pertaining to affiliated business arrangements. The amendments take effect 60 days after adjournment of the legislature.

    State Issues State Legislation Title Insurance Mortgages RESPA

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  • Arkansas law stiffens criminal penalties for spoofing, robocalls

    State Issues

    On April 4, the Arkansas governor signed SB 514, which establishes a process for state regulation of telecommunications service providers and third-party spoofing providers, and stiffens criminal penalties for persons who engage in illegal robocalling and spoofing practices. The act reclassifies “spoofing”—defined in the act as “displaying fictitious or misleading names or telephone numbers—and illegal robocalls as Class D felonies. Arkansas law previously classified these actions as misdemeanors. The act requires telecommunications providers to report, on an annual basis, to the Arkansas Public Service Commission, implemented measures for identifying and combating the illegal calls.

    The Arkansas Attorney General issued a press release in which she noted that the legislation “reinforces how determined Arkansans are to stop these illegal calls and creates a path for enforcement to hold the bad actors accountable.” The act takes effect 90 days after adjournment of the legislature.

    State Issues State Legislation Privacy/Cyber Risk & Data Security Robocalls State Attorney General

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  • Virginia provides eviction and foreclosure relief to federal employees impacted by shutdowns

    State Issues

    On April 3, the Virginia governor signed SB 1737, which provides a 30-day stay of eviction and foreclosure proceedings for furloughed federal employees and contractors during a partial closure of the federal government. The law grants a tenant or homeowner who defaults on a housing payment after December 22, 2018, a 30-day stay on eviction or foreclosure proceedings. The tenant or homeowner must provide “written proof” that they were subject to a furlough, or were not otherwise receiving wages, as a result of the partial government shutdown that began on December 22, 2018. The tenant or homeowner must be an (i) employee of the federal government; (ii) a federal government contractor; or (iii) an employee of a contractor for the federal government. The law is effective immediately and expires on September 30.

    State Issues State Legislation Shutdown Relief Foreclosure Mortgages

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  • Minnesota clarifies definition of “sales finance company” for licensing purposes

    State Issues

    On April 5, the Minnesota Department of Commerce (Department) issued guidance clarifying the types of entities meeting the definition of “sales finance company” under Minnesota law for purposes of whether a license is needed to conduct business. The guidance requires “any company who purchases motor vehicle retail installment contracts from retail sellers located in Minnesota, and applies a finance charge,” to obtain a motor vehicle sales finance company license. Any company engaged in the business of a “sales finance company” is required to apply for and maintain a license under Minnesota law, regardless of whether the company has a physical presence in Minnesota or whether an in-state retail seller chooses to hold and collect retail installment contracts out-of-state.

    Completed applications by companies that purchase motor vehicle retail installment contracts are due to the Department by July 1. The license application requirement will only apply to those contracts entered into on or after July 1. Non-depository financial institution applicants must apply through the Nationwide Multistate Licensing System (NMLS).

    State Issues Auto Finance Licensing NMLS State Legislation

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